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Ancient Ales and Chemicals Innovation: Finding Opportunity Among Regulation
Posted on May 18th, 2016 by Matt Weber in Chemical R&D
Think back to the last time you cooled off with a beer on a warm day, or toasted family and friends during the holidays. Aside from noticing the occasional wheat stalk or conspicuous orange slice on the bottle label, were you ever curious about the ingredients used to brew and formulate your beverage? Those ingredients can vary wildly depending on the beer’s brand, brewery or even country of origin. Imagine the variety, where in the US alone, there are a record 4,269 craft breweries as of 2015 – which grew at a double-digit pace from the previous year – and this only represents 12% market share of the total US beer market! This flourish of diversity stands in stark contrast to the global beer market which, until recently, was stifled by uniformity born of tradition and regulation. In many ways, the story of innovation for the beer market has a lot in common with that of the chemicals industry.
In a recent Harvard Business Review article, Dogfish Head Craft Brewery founder Sam Calagione describes the challenges he faced in growing his business amidst the recent “craft brewing renaissance.” Mr. Calagione cites the Reinheitsgebot, a German beer regulation which dates back to 1516, as a having discouraged creativity in the beer market for centuries. The Reinheitsgebot limits brewers to using four ingredients in the brewing process: water, barley, hops and yeast (which was later added in a revision to the law, after its role in fermentation was discovered). Though the regulation was only enforceable in Germany, it eventually served as a global traditional purity standard among brewers. “German emigrants exported their brewing tradition around the world,” Mr. Calagione explains, “by the time I opened my business in 1995, homogenous industrial light lager dominated the commercial beer landscape worldwide.”
In order to compete with a homogenous market, Dogfish Head started to create what they called “off-centered ales,” which broke the boundaries of traditional Reinheitsgebot brewing. They used exotic ingredients such as gesho root, muscat grapes, roasted chicory, lemongrass and even saffron (in many instances inspired by Belgian beer makers.) The brewing company also partnered with University of Pennsylvania Museum of Archaeology and Anthropology “to do a sophisticated chemical analysis of drinking bowls excavated from the tomb of the king of Phrygia,” which enabled them to reverse-engineer a 2,700 year-old beer recipe. This beer, now called Midas Touch, marked the start of Dogfish Head’s Ancient Ales collection, a series of recipes based on analyses of pre-Reinheitsgebot beer residues ranging from 2,700 to approximately 10,000 years old!
Dogfish Head’s rebellious strategy has paid off for the company (albeit after a rocky start) – enabling them to grow from a small, 12-gallon per-batch brewer to a 300-employee company that produces 175,000 barrels annually. They’re also one of the central influencers of a growing craft beer market movement in which innovation is key to competing against market incumbents. This success of this movement has even influenced many of the aforementioned ‘traditional’ brewers to bend on Reinheitsgebot tenants by diversifying their ingredient cabinet and product offerings. Reflecting on the lessons learned from his success, Mr. Calagione encourages entrepreneurs to, “question regulations — sometimes they benefit the consumer, but other times they just wall off a market. Instead of trying to get into the same rigged, competitive game as everyone else, ask yourself, ‘Can I create some new rules, a new space? Is there an opportunity to innovate, collaborate, and create value at the margins?’”
This quote has as much to do with regulation-born beer ingredient innovation as it does chemicals industry innovation, a connection which became evident to me while attending the 12th annual Innovation Fusion conference. Innovation Fusion brought together leaders in R&D and innovation from the specialty chemicals and consumer goods industries. Experts spoke about topics such as building innovative cultures, product portfolio management best-practices, value creation through both incremental and disruptive innovation, and sustainability. The topic of regulation was also presented at the conference, as well as the compliance impacts on input materials, processes and permissible markets for chemicals products. Though innovation and regulation might appear to exist on separate ends of the creative spectrum, I soon found out well-design regulations can stimulate innovation.
One speaker, Alberto Fangareggi, Senior R&D Director Polyurethanes EMEAI DOW, presented a case study titled “defining a balanced innovation portfolio for maximum ROI.” The study, which focused on Dow’s Polyurethanes portfolio, made insightful observations about the balance of risk and opportunity in an innovation portfolio. Mr. Fangareggi commented, “I don’t remember, in Dow, a regulation that was not an opportunity to be first.” He cited regulations as being drivers of innovation, enabling Dow to diversify their core platform and branch into both new technologies and new markets.
However, not all regulations are boons for innovation. Paul Leonard, Head of Innovation and Technology Policy at BASF SE, described the complex relationship between regulation & innovation – citing examples where regulations can spur innovation (e.g. renewable energy), and also where regulations act as barriers to innovation (e.g. chemicals and healthcare). With the historic growth of chemicals regulation in the EU, and following global regulatory trend, governments need to carefully create the right regulatory environment to promote innovation and competitiveness. Mr. Leonard called for support of the chemicals industry in encouraging EU policymakers to consider the full impact of legislation on the growth of innovation – a rational endeavor which seeks to create more opportunities than barriers to innovation.
A company’s dedication to defining their innovation portfolio – in finding the right balance between markets and technologies – is a strategic business decision. It is a decision where the right amount of due diligence and risk acceptance can lead to tremendous business opportunity, especially in the competitive chemicals market. Ultimately, uncertainty is inherent to innovation, but companies that are willing to take on the risks are the only ones that can find “off-centered” success.
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